Cowie's quick guides fixed rate mortgages

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Ian Cowie looks at the increasing attractiveness of home loans that take away
the worry of rising interest payments.

What's new?

Some of the cheapest fixed-rate mortgages since the start of the credit crisis
are coming on to the market, as the Government's Funding for Lending scheme
makes it easier for banks and building societies to advance home loans. So
home buyers who want certainty about future costs can lock into fixed deals
below 3.4pc for five years or below 4.3pc for 10 years, depending on how
much they need to borrow.

Why bother with fixed - rate mortgages?

Bank of England base rate has remained frozen at 0.5pc for nearly four years
now but is unlikely to stay there forever. Home buyers who can cope with
standard variable rate (SVR) mortgage costs around 3.99pc the current SVR
for Halifax, Britain's biggest mortgage lender might struggle if rates
were forced higher; perhaps by rising inflation or falling exchange rates
for sterling. Fixed rates enable you to avoid that risk and have certainty
about what is many household's biggest monthly outgoing.

How low can fixed - rate mortgages go?

West Bromwich Building Society is offering a five-year fixed-rate mortgage at
3.39pc to borrowers with a 20pc deposit or, put another way, requiring loans
to value (LTV) of no more than 80pc. There is a curiously priced arrangement
fee of £748 on this deal but also the flexibility of borrowers being allowed
to make overpayments up to a maximum of £999 per month.

Charlotte Nelson of independent statisticians Moneyfacts commented: "The
fee of £748 is reasonable and much lower than the competition, so is bound
to prove popular with those looking to keep initial costs down."

Where can I fix mortgage costs for longer?

Borrowers with at least 25pc equity in their home can lock mortgage costs at
4.29pc for 10 years with Leeds Building Society. Those who require up to
80pc LTV are being offered a fixed rate of 4.69pc for the same term from the
same lender, demonstrating how borrowers with the biggest deposits can get
the finest rates. However, there is a £199 booking fee plus an £800
completion fee and an eye-watering early repayment penalty equal to 6pc of
the sum borrowed if the mortgage is repaid with two years of being taken
out.

What if I need to borrow more?

Yorkshire Building Society has reduced selected fixed mortgage rates,
including the three-year fix at 4.64pc on up to 90pc LTV. A fee of £495 is
payable. The deal offers a £500 rebate incentive on completion of the
mortgage and borrowers have the added flexibility of being able to make
overpayments up to a maximum of 10pc of the mortgage advance.

Ms Nelson said: "It's great to see a rate reduction on a high
loan-to-value deal. Although there are lower alternatives available, this
deal, combined with a reasonable rate, low fee of £495 and £500 rebate, is
highly attractive."

Where can borrowers with only 5pc deposits find fixed-rate mortgages?

Since the credit crisis began five years ago, 95pc LTV mortgages of any
description have become harder to find but fixed rates are now becoming
available. Hanley Economic Building Society has launched a new five-year
fixed rate priced at 5.49pc on mortgages up to 95pc LTV. A fee of £200 is
payable. This deal also allows overpayments up to a maximum of 10pc of the
outstanding balance.

Who are the major providers?

Halifax's major rivals include Santander (Madrid: SAN.MC - news) the Spanish giant that bought Abbey
National, Alliance & Leicester and Bradford & Bingley and HSBC (LSE: HSBA.L - news) .
Nationwide, Britain's biggest building society, should not be overlooked as
organisations owned by their members rather than shareholders are
advancing a rising proportion of home loans, particularly to first-time
buyers.

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